Google wants a lot more water and a new tax deal for big data center expansion in The Dalles

September 27, 2021
Google wants a lot more water and a new tax deal for big data center expansion in The Dalles

Google is negotiating to build two more data centers in The Dalles, seeking access to a lot more water and a new package of tax breaks in exchange for spending hundreds of millions of dollars to expand its facilities on the site of a former aluminum smelter.

Neither Google nor the city will say how big the new data centers would be, but they figure to be huge. Google spent $1.8 billion on its server farms along the Columbia River through 2017.

Google has expanded steadily in The Dalles since opening its very first corporate data center there in 2006. Accompanying the company’s growth has been a steady level of skepticism among the residents over the tax breaks Google receives from the city and Wasco County.

The issue of water rights has raised the level of scrutiny around the company’s latest expansion proposal.

Google has negotiated an agreement with The Dalles that would substantially boost the water available through the city utility – and, in turn, the volume of water available to cool Google’s enormous server farms. Google would pay the $28.5 million cost of the upgrade to the city’s water treatment and storage facilities under the agreement, which will have an initial vetting at a city council meeting Monday evening.

“As we explore our growth, we’re committed to the long-term health of the County’s economy and natural resources,” Google said in a written statement.

In addition, Google has negotiated a new package of tax breaks that would exempt its facilities from much of the property taxes that other businesses pay. Unlike the company’s prior deals with The Dalles and Wasco County, though, this one would offer only a partial exemption.

Mayor Richard Mays said the new deal would require Google to pay about $57 million in property taxes and fees over two decades for the first of the new data centers, and approximately $66 million more over 20 years if it builds a second data center.

That would be a substantial boost in revenue for the small community in the Columbia River Gorge, but the deal would continue excusing Google from much of its property tax bill.

Three prior agreements have saved Google approximately $240 million since it opened its first data center in The Dalles 15 years ago, including $34 million in savings last year alone.

“We are getting a lot more money out of this deal than we were the first three combined,” said Mays, who helped negotiate the new tax deal. He said Google was open to paying more this time because the company wants to improve its image in The Dalles.

“They don’t mind doing that because of the public relations part of it,” Mays said. “One of the criticisms of the first deals was that Google wasn’t paying their ‘fair share’ of property taxes.”

But some residents and elected officials are skeptical of the new deals, too, in part because they were negotiated in secret and some details of the pact remain private.

The Dalles won’t say, for example, how much of the expanded water supply it expects Google will consume.

The city won’t disclose how much Google currently uses, either, and contends that the company’s water usage represents a “trade secret” exempt from disclosure under Oregon’s public records law. Other Oregon cities, including Hillsboro, routinely disclose the water consumption of industrial customers like Intel.

Google didn’t respond to a request for comment on how much water it plans to use, but said that it has pledged to replenish more water than it uses from its offices and data center by 2030. The company’s water use has been disclosed in other states – among them Texas, Arizona and South Carolina – where its data centers’ demands have created controversy over the amount of water they use.

“At this point, nobody has enough information to make any kind of decision,” said Darcy Long-Curtiss, city councilwoman in The Dalles. She said she doesn’t believe Google or city officials are trying to pull the wool over her eyes, but she said the public ought to be entitled to scrutinize the water and tax deals and air their concerns.

Residents deserve to have as much information about the agreement as Google does, Long-Curtiss said.

“That’s their job as a corporation, is to look out for themselves. And we should be looking out for ourselves,” she said.

Several of the nation’s largest tech companies have huge Oregon data centers, which consume as much electricity as a small city but employ relatively few people. Google had 200 employees in The Dalles in 2018.

Apple and Facebook both have massive facilities in Prineville, and Amazon operates a constellation of facilities along the Columbia River in eastern Oregon. All these companies distribute their data centers across the country, often in rural areas close to big cities so people can quickly access the photos, music, movies and other data stored in the server farms.

Oregon is especially popular among the big tech companies because of the Northwest’s relatively low energy prices and, more importantly, because the state offers some of the nation’s largest tax breaks.

Oregon empowers local communities to exempt data centers from some or all of their property taxes. As a result, small towns find themselves in a race to the bottom to cut the most lucrative deal for some of the world’s largest and most profitable companies.

In 2019, for example, officials in Umatilla County said they “kind of plagiarized” prior tax deals Amazon had already secured in neighboring Morrow County, fearful that if they asked too much the company would take its data centers elsewhere. The deal they settled on is worth tens of millions of dollars to Amazon over the life of the agreement.

Still, the benefits the companies provide are very real in small communities with few other economic engines. Data centers often pay compensatory fees in exchange for their property tax exemptions and generate franchise fees from their electricity use.

Those may amount to just a few hundred thousand dollars a year, a tiny fraction of the companies’ property tax savings. But it can still be a big part of a small town’s budget.

In The Dalles, Google is making productive use of industrial land that might otherwise sit empty, Long-Curtiss said. But she said any deal for the city’s water rights ought to be made in the context of a broader assessment of the community’s long-term water needs.

“We all deserve to know what’s in this agreement, especially because the city of The Dalles did not hire attorneys who specialize in this kind of negotiations,” Long-Curtiss said.

Mayor Mays said he drove to Portland one day to interview a law firm that had negotiated deals with Facebook and Amazon before beginning negotiations with Google. But Mays, who had previously been city manager in five cities across the country – including Cannon Beach in Oregon – said he concluded the outside attorneys weren’t offering anything he and the city staff and county couldn’t accomplish on their own.

“I determined that I thought we would do just fine the way it is, and I don’t regret that at all,” Mays said. “We did it ourselves, and I think we did a good job of it.”

Central to Google’s proposed expansion is a plan to increase the amount of water available through the city. In a memo to the city council, public works director Dave Anderson wrote that future water demand in The Dalles could rise as high as 17.5 million gallons a day, up from a daily capacity of 9.9 million gallons now.

The city is 15 years into a 20-year plan for its water systems, Anderson wrote, and “did not anticipate the type of development” Google plans on the former smelter site.

While Anderson wouldn’t say how much of the future water demand will come from Google, he said the company has agreed to finance eight construction projects to increase capacity. Central to the expansion is a plan to pump treated water into the local aquifer for storage in wet-weather months, then drawing on it to meet summer demands.

The net result, Anderson said, would be a substantial increase in the city’s capacity to provide water to residents and businesses. And Google would provide some of the groundwater rights associated with its property to the city, enough to cover two-thirds of the capacity of two new wells.

Those are the broad outlines of the deal. Residents will never see the full agreement, Anderson’s memo reports, because the amount of water available to Google “would be redacted in any publicly available versions,” a nod to Google’s confidentiality requirements.

That passage has triggered alarm in some members of the community, Anderson acknowledged: “I totally understand that,” he said.

It’s nonetheless a good deal for The Dalles, Anderson said, because Google is paying for the expansion, handing over some of its water rights and will pay the same rates as other industrial customers for the water it uses. He said there’s no scenario where any customer would have less water than it did before.

Officials in The Dalles who negotiated the deal are on the city’s payroll, Anderson said, not Google’s, and are acting on the public’s behalf.

“There really is not any rationale or reason for us to do anything contrary to those interests,” he said.

This article has been updated with comment from Google.

Clarification: The only portion of Google’s water agreement with the city to be redacted would be the amount of water The Dalles would commit to provide to the company. This article has been updated to clarify that. The article has also been updated to use the language an Umatilla County official used in 2019 to discuss the region’s negotiations with Amazon.

By Mike Rogoway

Share this post